China

China

China fears quality impact from cost cutting

CHINA: The Chinese wind industry is mulling over the impact of quality problems that have caused wind turbines to collapse or burst into flames. Many predict the cases so far are just the tip of the iceberg.

Caught on TV. Footage of a turbine fire
Caught on TV. Footage of a turbine fire

The turbine failures were revealed after China's National Energy Bureau announced an investigation amid fears that cost cutting has caused a fall in standards.

Quality problems, such as oil leakage in gearboxes, are normal in the eyes of Chinese wind farm operators. "Within one or two years, almost all the gearboxes of our first batch of 750kW wind turbines were broken. We had to ask the wind turbine makers to extend the warranty period for another three years, beyond the two years' quality assurance," says a wind farm operator who asked not to be identified.

But oil leaks are just part of the problem. Far more serious incidents have emerged. Sinovel turbines have collapsed in Jiuquan, in China's north-west Gansu province, and Linghe, in the north-east Liaoning province. The turbine manufacturer has blamed poor installation and extremely strong winds.

Collapse

A turbine also collapsed at the Datang Zuoyun wind farm in Shanxi province, but the manufacturer is unconfirmed. In July, a turbine at a farm near Xilinguole, Inner Mongolia, burst into flames (see images, right). Again, the manufacturer is unknown.

Industry officials say that China has had about ten turbine incidents so far this year, ringing alarm bells in the industry.

China's annual output of turbines has grown significantly since 2008, meaning that the guarantee period runs out for a large number of wind turbines this year.

The incidents are just starting to appear and more problems will be exposed, say industry experts. Zhou Hongyu, an electric equipment analyst with Dongxing Securities, believes that the Chinese wind turbine manufacturing sector is developing too fast, totalling 86 companies by end-2009.

Zhou says that companies will naturally pour money into a sector that is a hot spot, resulting in seemingly surplus output capacity. Only about 20 of the 86 enterprises have rolled out turbines from their production lines, he says. And only about ten can produce turbines in batch, which is cheaper and provides more profit. "When this gold rush ends, it will be good to see about ten turbine enterprises that remain in operation in the market," says Zhou.

Ni Weidou, an academic at the Chinese Academy of Engineering, urges caution. "We shall not rush forward as before. We must pause and think it over. I am not throwing cold water on wind power. I am simply hoping the Chinese wind power industry could progress soundly," says Ni.

Wind farm operators know the extent of the problem but have no way out. One says: "In the two-year warranty period, we can have the faulty components changed. But what about the days when the quality assurance ends?"

Blueprints

The problems have been blamed on the lack of research and development carried out by Chinese manufacturers - about 95% of companies simply buy foreign blueprints or rely on foreign technologies, rather than undertake independent work.

"The first wind turbine producers had the dream of developing their own technologies. But under the current situation, by the time they have finally developed their own technologies, others would have earned pots of money with bought blueprints. Those developing their own technologies would be eliminated in the market," explains Ni.

An industry insider says: "The blueprints come from secondand even third-class foreign enterprises and research institutes. Companies like Vestas and GE will surely not sell their latest technologies to rivals."

Low pricing has also affected quality. To boost output, Chinese producers keep enlarging turbine capacity, with 5MW and 6MW turbines now being developed. But this accelerated development has resulted in a price war. The unit price of 1.5MW wind turbines has dropped from a high of CNY 6,500/kW ($977/kW) in 2008 to CNY 4,700/kW, causing some firms to run into the red.

In November, the result of China's latest public tender for onshore projects was announced, in which Sinovel won a 1.35GW order by offering CNY 3,983/kW ($597/kW) for 1.5MW turbines for Zhanjiakou wind farm projects in north China's Hebei Province.

Industry experts see this price as unreasonably low and fear that, in the name of small profits but quick turnover, wind turbine producers cut the purchase price of components and produce in large quantities. This generates a vicious circle in which turbine prices continue to drop while outputs grow and quality is neglected.

Policy effect

Policies to boost renewable energy generation have also had an unintended negative effect on turbine quality. Under the Renewable Energy Law, the Chinese goverment has been providing subsidies for the wind industry. To invigorate equipment manufacturing, wind turbine makers have been encouraged to partner with wind farms. And in 2005, the Chinese government required 70% localisation in the production of wind turbines.

However, only a few Chinese companies could win public tenders for concession projects and foreign turbine makers found it hard to win projects. In late 2009, China abolished the requirement, loosening control over foreign turbine makers.

Tax policies also strengthened local protectionism. Chinese local government strategy encourages wind farm operators to prioritise locally made wind turbines or attract wind turbine makers willing to set up local plants. Wind turbine manufacturers setting up local production plants resulted in local governments enjoying more taxes, but it also created an excess of low-level manufacturing facilities.

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